As a follow-up to "Future Financial Winners and Losers" and "Retailers and Restaurants: Future Winners and Losers," let's take a step back and look at some of the characteristics of companies that might survive the current financial crisis and those that might wither away in the future.I will use the media and entertainment sector as the backdrop for my analysis. So, what are a few big forces that help determine future winners and losers? Here are three.
The current (and next) upgrade cycle is going to benefit media and retail companies which are able to:
Sell-out existing inventory while offering new products. If you go into any Best Buy (BBY), you can buy your favorite titles on DVD at cheap prices, while also buying a Blue Ray player and Blue Ray discs. Best Buy gets you coming and going. Roll-out old titles in the new format. Remember all of those old classics which Walt Disney put back into the "vault" a few years ago? Those "oldies but goodies" will be remastered and reintroduced in Blue Ray format.
There are several potential winners and losers, as a result of this sea change. Viacom (which split into Viacom ( VIA)and CBS ( CBS)) produces content for cable TV and the movie industry, while CBS is involved in radio, broadcast TV, publishing and outdoor advertising. Sounds like a good media/bad media segregation to me. Time Warner ( TWX) will probably benefit from its "triple play" and cable operation, but the company still has a huge amount of debt and is suffering from the AOL fiasco from nearly a decade ago. Disney ( DIS) has broadcast TV and cable operations and the company has been effective at migrating some of its shows from one format to another. In addition, the integrated theme park and resorts businesses will favor Disney over the theme park-only competition like Six Flags ( SIX)and Cedar Fair ( FUN). (Don't miss " Ahead Of The Bell: Six Flags Bankruptcy Fears Grow") For more on Six Flags' poor financial health, check out these lessons from the Finance Professor Archives:
"Balance Sheets: The Good, the Bad and the In-Between" (August 2007) "Companies That Might Not Survive This Crisis" (February 2009) In advertising, Google ( GOOG) is the big beneficiary from the Internet advertising boom. Companies such as Omniture ( OMTR), which provide online marketing optimization services will also benefit. Identify companies that are on the frontline of a macro shift from one technology to another. Ask yourself: How are they managing the changes? Identify upgrade cycles and try to capitalize on them. Separate companies with strong balance sheets from companies with weak ones.